Individual Makes Decisions

Chapter 2: Selfishness

Any debate must have a starting point, science is no exception. If we are still arguing the starting point, then science can do nothing. So in the development of science, everyone involved must obey a self-evident rule: once something has been specified as a postulate or axiom, people won't argue over that any longer. It's not saying all have to agree sincerely on these postulates or axioms. To agree or not to agree on them, it's not important, what's really important is to agree not to argue on the starting points. The true principle for scientific dialectic is: "Don't argue with me on the start of my theory, let me just finish my logic reasoning under the theory and derive testable or refutable implications. Only until then do you have reliable targets to object. If the implications are mercilessly refuted, I then have to consider my postulate was wrong."

Sometimes those unarguable postulates or axioms may seem groundless and very incredible. For example, an important postulate in maths says: "Given one plus one equals a number, which is called two; and given two plus one equals another number, which is called three ..." Sounds pretty silly. But without this postulate, we have no idea between one and two there can't be another number. If we argue on this foundation, then how can ever the maths theory develop?

Here is another example. In geometry, a straight line is the shortest distance between two points. Kind of hard to take, but it's far less abstract than the postulate about a point. Geometry states: "A point is unmeasurable!" Given a point is unmeasurable, how can there exist a measurable straight line?! But it just based on these specious but legitimate starting points, that geometry guided the constructions of ancient pyramids over the world (though these postulates were not clearly understood at the time), and the modern Bank of China Tower in Hong Kong. Out conclusion is: postulates that seem groundless can lead to acclaimed learnings.

Chapter 2, Section 1: Individual Makes Decisions

The first postulate in economics is: "individual" is the unit of all economic analysis. That's is saying, any group of people, organization, society or nation cannot be the starting point for analyzing economic problems. Analyses like macro economy, social welfare, or government policies all must be based on individual.

In economics there is no theory based on collective. No matter how "macro" its opinion is, or whether its starting point is mentioned or not, if not based on individual, the theory cannot be desirable. That's to say, analyzing macro economy has to be based on individual as well. Of course, there are theories that are based on collective or even the entire society, but they are detached from real foundation. Time and time agan we can hear the sayings like the macro is more important than the micro, they are just from those that don't have any economics background. The macro is summed up by individuals, therefore the difference between the macro and the micro is just size. In modern economics, some scholars classify the macro and the micro according to their emphasis of monetary, instead of the sizes.

When individual is the unit, we don't discriminate male or female, old or young, sane or insane. We don't care A is genius or B is stupid, and just treat them both individual. And "individual" itself is distinguishable to anyone capable of observation. What's equally important, the foundational postulates cannot flip-flop. The "individual" postulate is no exception. We cannot just base some problems on individual and some others on collective. Certainly, there are problems about collective instead of individual, but when dealing with them, we still need start from individual.

Why is "individual" so important? The answer is, every choice and selection is only made by individual. The choice of a collective is just a combination of the choices of its individuals. That's to say, even when someone loses his freedom under a totalitarian government, forced, it's still he that makes the choice. In other words, there is neither absolute unfreedom, nor absolute freedom; a choice must have constraints, and it's made by individual.

So economics's first postulate is that individual makes decisions and choices. In this postulate there is an unobvious philosophy. Economics explains phenomena by predicting human behaviors. We say all human actions are by decisions. Whether the decisions are wise or not, reasonable or not, is not important, what's important is that individual decides. Whether human actions are by decisions or just totally random and blind, it is not important; the important is we always follow this postulate or axiom.

That "individual makes decisions" is a convention of only economics. It seems different from those in other natural sciences. When explaining physical phenomena, physicists don't say the behavior of an object is the result of its choice. Well, in principle if physics says objects make decisions, It's actually OK, but physicists didn't do that. Every science has its starting points, and they are beyond argument. Once enough people accept the postulate "individual makes decisions", all problems of economics become problems of choices. That the most important theory for economics — price theory — is also called choice theory, it does have a reason.

To explain human behaviors with the choice theory certainly requires the behaviors are predictable. Precisely speaking, the first axiom of economics is any human behavior arises from a predictable individual choice. This is an axiom, a postulate of economics, no matter right or wrong, it's no arguable. 

(Translator: Not like in mathematics that postulates are denied by logic contradictions, i.e. based on a same postulate different paths of reasoning lead to inconsistent conclusions, postulates in empirical sciences are negated by the deviation of their implications from real world observations. Although the author says it doesn't matter whether the postulate "individual decides" is right or wrong, he fails to point out that the postulate "individual doesn't decide", which is theoretically legitimate, gets abandoned immediately.)